Case Law Details
Mumbai Postal Employees Co-operative Credit Society Ltd Vs ITO (Bombay High Court)
Bombay High Court held that failure on the part of assessee is a prerequisite for invoking jurisdiction for reopening of assessment. In absence of same, reopening of assessment is unsustainable and liable to be set aside.
Facts- A return of income was filed by the Petitioner for A.Y. 2014-15 declaring Nil income after claiming deduction u/s. 80P of the Act of Rs.13,31,80,877/-. Subsequently, the Petitioner’s case was selected for scrutiny and a notice u/s. 143(2) was issued. One of the issues flagged during scrutiny was the deduction claimed under Chapter VI-A of the Act by the Petitioner. A notice u/s. 142(1) of the Act was issued asking the Petitioner to inter alia explain with documentary evidence the claim of deduction under Chapter VI-A of the Act.
Post reply from the assessee, the order of assessment u/s. 143(3) of the Act came to be passed on 23rd November, 2016 whereby deduction u/s. 80P of the Act only in regard to the holiday home charges was disallowed to the extent of Rs.1,00,650/- and added back to the income of the assessee, under the head income from other sources and by necessary implication the claim of the Petitioner for deduction u/s. 80P of the Act with regard to interest income earned by the Petitioner on account of deposit of funds in the cooperative bank was therefore allowed.
A notice u/s. 148 of the Act came to be issued by the A.O. seeking to reopen the assessment proceedings for A.Y. 2014-15 on the ground that the income had escaped assessment for the said year, within the meaning of Section 147 of the Act.
Conclusion- In Hindustan Lever Ltd. vs. R.B. Wadkar, Assistant Commissioner of Income Tax and other the Court set aside the notice under Section 148 of the Act impugned therein, on the ground that the jurisdictional requirement of the proviso to Section 147 of the Act had not been complied with as the A.O. had nowhere stated in the reasons recorded that there was failure on the part of the assessee to disclose fully and truly all material facts. Similar facts situation exists even in the present case where the reasons recorded do not at all alleged any such failure on the part of the assessee which was a condition prerequisite for invoking jurisdiction for reopening in addition to the condition of ‘reasons to believe’ as this was a case of reopening beyond the period of four years.
We have no hesitation in holding that in the facts and circumstances of the present case, the reopening of the assessment is unsustainable.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
The Petitioner challenges the notice under Section 148 of the Income Tax Act, 1961 dated 19th March, 2021, order dated 23rd March, 2022 rejecting the objections to the reopening as also the assessment order dated 30th March, 2022 passed by Respondent No. 2 under Section 147 r/w Section 144B of the Act for the assessment year 2014-15.
2. Briefly stated the material facts are as under:
The Petitioner is a co-operative credit society registered under the Maharashtra Co-operative Societies Act, 1960, with membership being limited only to the employees of Indian Postal Service Government of India employed in the State of Maharashtra and Goa. The object of the society is stated to encourage savings habits amongst its members and to undertake activities for improving welfare of the members. It is stated that out of the fund collected from members, loans are provided to its member without any security, at a rate of interest lower than the rates charge by the banks.
A return of income was filed by the Petitioner for the assessment year 2014-15 on 30th March, 2016 declaring Nil income after claiming deduction under Section 80P of the Act of Rs.13,31,80,877/-. Subsequently, the Petitioner’s case was selected for scrutiny and a notice under Section 143(2) was issued. One of the issues flagged during scrutiny was the deduction claimed under Chapter VI-A of the Act by the Petitioner. A notice under Section 142(1) of the Act was issued on 27th September, 2016 asking the Petitioner to inter alia explain with documentary evidence the claim of deduction under Chapter VI-A of the Act.
A detail reply was submitted to the said notice vide communication dated 10th October, 2016, wherein it was explained that the Petitioner was not a co-operative bank referred to in Section 80P(4) of the Act and that the Petitioner did fulfill the conditions of eligibility under Section 80P of the Act to the extent (A) that the assessee was a co-operative society under Seciton 80P(1) of the Act (B) that it was carrying on business of providing credit facilities to its members as required under Section 80P(2)(a) (i) of the Act and (C) that it was permissible for the Petitioner to claim a deduction in respect of the whole of the amount as profits and gains of business under Section 80P(2)(a) of the Act.
3. Finally, the order of assessment under Section 143(3) of the Act came to be passed on 23rd November, 2016 whereby deduction under Section 80P of the Act only in regard to the holiday home charges was disallowed to the extent of Rs.1,00,650/- and added back to the income of the assessee, under the head income from other sources and by necessary implication the claim of the Petitioner for deduction under Section 80P of the Act with regard to interest income earned by the Petitioner on account of deposit of funds in the cooperative bank was therefore allowed.
4. A notice dated 19th March, 2021 under Section 148 of the Act came to be issued by the A.O. seeking to reopen the assessment proceedings for the assessment year 2014-15 on the ground that the income had escaped assessment for the said year, within the meaning of Section 147 of the Act.
5. The reasons furnished to the Petitioner for reopening were as under:
….“2. On perusal of the record it is seen that the assessee cooperative society received interest of Rs.92,08,896/- on deposits/investments with co-operative banks during the financial year relevant to A.Y. 2014-15. Assessee claimed deduction u/s 80P of Rs.92,08,876/- from the interest income so received under the head “Business income”. The assessee’s claim of deduction u/s.80P(2)(a)(i) of the Income Tax Act, 1961, has been allowed in the assessment order u/s, 143(3), dated 23.11.2016. Section 80P(2)(d) of the Income Tax Act, 1961, provides that deductions be allowed to co-op. credit societies in respect of any income derived by way of interest or dividends from its investments with any other co-operative society, the whole of such amount, with the intent to promote co-operative societies. The assessee’s claim of deduction u/s. 80P(2)(d) has been allowed which is not in conformity with the provisions of the above Section.
Irregular allowance of the above deduction u/s. 80P(2)(d) has resulted in under assessment of income of Rs.92,08,876/- and consequent short levy of tax of Rs.28,45,542/-, interest and consequent penalty ”
Objections to the reopening were filed by the Petitioner which were rejected by the A.O. vide order dated 23rd March, 2022. Finally, an order of assessment dated 30th March, 2022 came to be passed under Section 147 and 144B of the Act.
6. Mr. Mistry, learned Senior Counsel for the Petitioner urged that there was no tangible material with the A.O. for initiating the reassessment proceedings and that it was nothing but a classic case of change of opinion. It is stated that the issue with regard to the entitlement of the Petitioner to claim deduction under Section 80P of the Act had been specifically gone into by the A.O. leading to the passing of the order of assessment under Section 143(3) of the Act.
It was further urged by Mr. Mistry that the A.O. from the reasons recorded, did not establish that there was any failure on the part of the assessee to declare fully and truly the material facts necessary for the said assessment year and, therefore, it was urged that the entire reassessment proceedings were non-est in the eyes of law. Even on merits, Mr. Mistry submitted that there was no reason for the A.O. to have denied the claim of deduction of the Petitioner under Section 80P of the Act.
7. On the other hand learned Counsel for the Revenue tried to support and buttress the view expressed by the A.O. in the order of assessment impugned in the present petition. It was also urged that there was no jurisdictional error committed by the A.O. in initiating and concluding the reassessment proceedings against the Petitioner, who was erroneously granted the benefit of deduction under Section 80P of the Act, even when it was not entitled to any such benefit.
8. We have heard learned Counsel for the parties.
9. It is no longer res integra that the action of the A.O. in initiating reassessment proceedings have to be tested on the touch stone of the reasons recorded. On a perusal of the reasons recorded as have been reproduced partially in the preceding paragraphs, it is clear that the A.O. felt that the claim of deduction under Section 80P(2)(d) of the Act which had been allowed in favour of the Petitioner was not in conformity with the provisions of the said section, which consequently had resulted in an under assessment of income of Rs.92,08,876/- and a consequent short levy of tax of Rs.28,45,542/-. This satisfaction recorded by the A.O. in the reasons was not based upon any material other than obtained on account of ‘perusal of the record’.
10. It can be noticed that in the present case the assessment was under Section 143(3) of the Act, during which the Petitioner had been served with the notice under Section 142(1) of the Act dated 27th September, 2016 asking the Petitioner to explain with documentary evidence the claim of deduction under Chapter VI-A of the Act, reply thereto was submitted by the Petitioner on 10th October, 2016 with an explanation that the Petitioner get fulfilled the conditions of eligibility under Section 80P of the Act, whereafter the order of assessment came to be passed on 23rd November, 2016. It is therefore clear that the issue stood considered as only a part of the deduction under Section 80P of the Act while disallowing the same in regard to income from holiday home charges.
11. The A.O. therefore did not have any tangible material with him based upon which he could form his reason to believe that income had escaped assessment. The entire basis for reopening is nothing but a change of opinion on the part of the A.O. that the benefit of deduction under Section 80P of the Act of Rs.92,08,876/- ought not to have been allowed at all. As between the date of the assessment order under Section 143(3) of the Act and the date when the reasons were recorded, there has been neither any change in law nor any new material has been shown to have come to the knowledge of the A.O.. This therefore is nothing but a clear case of change of opinion as was rightly urged by Mr. Mistry and, therefore, impermissible for reopening the assessment.
Apart from this, the assessment is sought to be reopened beyond the period of four years from the end of the relevant assessment year 2014-15 and, therefore, it was incumbent upon the A.O. to establish that the Petitioner had failed to disclose fully and truly all material facts necessary for assessment during the relevant assessment proceedings. No such averment is made in the reasons recorded.
12. In the case of Hindustan Lever Ltd. V/s. R. B. Wadkar, Assistant Commissioner of Income-Tax and others1, it was held:
“…… The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. The reasons are the manifestation of the mind of the Assessing Officer. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide the link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment.
In the aforementioned case the Court set aside the notice under Section 148 of the Act impugned therein, on the ground that the jurisdictional requirement of the proviso to Section 147 of the Act had not been complied with as the A.O. had nowhere stated in the reasons recorded that there was failure on the part of the assessee to disclose fully and truly all material facts. Similar facts situation exists even in the present case where the reasons recorded do not at all alleged any such failure on the part of the assessee which was a condition prerequisite for invoking jurisdiction for reopening in addition to the condition of ‘reasons to believe’ as this was a case of reopening beyond the period of four years.
13. For the reasons mentioned hereinabove, we have no hesitation in holding that in the facts and circumstances of the present case, the reopening of the assessment is unsustainable.
Be that as it may, the present petition is allowed. The notice under Section 148 of the Act as also the order of assessment dated 30th March, 2022 passed under Section 147 r/w Section 144B of the Act are set aside.
The writ petition is disposed of accordingly.
Notes:
1 2004 ITR 332 Vol.268.
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